Public outrage at Hisco saga reflects frustration with 'fat cats'

4 July 2019

Do you think powerful top paid employees are disciplined more softly and treated more generously then those at the bottom?

Is this the reason for the ongoing critical sentiment about ANZ's treatment of its former New Zealand chief executive David Hisco.

There seems to be a general belief that people at the top in the business world are able to push the boundaries of their employment in a way that people lower down the chain are vilified for.

For instance, there has been comment on the fact that despite his alleged misuse of funds, Hisco was still paid out a year's salary on his departure.

This evokes a sense of injustice, perhaps fuelled by ANZ's insistence that the same standards have been applied to Hisco as would be applied to a junior teller.

The Hisco controversy has pulled others into the spotlight, with the bank's New Zealand chairman Sir John Key attracting a host of criticisms culminating in Deputy Prime Minister Winston Peters calling for his resignation from the board due to an alleged conflict of interest.

In addition, no doubt following on from the Royal Commission into the banking sector in Australia, there have been calls for the same sort of enquiry in New Zealand.

Following Hisco, the Reserve Bank has asked ANZ to conduct two independent inquiries on compliance and risk management and the Financial Markets Authority is considering the matter.

However, when you strip away the politics and the banking elements of the issue, Hisco's departure casts light on how differently senior executives are treated to more junior employees.

Indeed it is unlikely that a junior teller that misused $50,000 would be able to settle a 'mutual parting' with the bank and leave with a year's salary.

This difference in treatment is not unusual or "breaking" employment law. Settlements are voluntary.

In fact, employment law provides for treating senior and junior employees differently in a range of circumstances.

For instance, generally, higher compensation awards have been given to employees in more senior positions. This was commented on by Justice Thomas in the Court of Appeal in the early 2000s where he canvassed remedies for hurt and humiliation and noted: "Presumably, the court takes the view that the humiliation, loss of dignity and hurt feelings of senior executives or managers is likely to be greater than in the case of less qualified employees."

Similar trends continued in the 2000s, however things may be changing as awards are getting higher under a new approach in the Employment Relations Authority.

The chief judge of the Employment Court established three bands for humiliation compensation depending on the level of loss or damage, ranging from low level loss or damage, mid-range loss or damage and high-level loss or damage.

Applying this framework designates higher levels of compensation for harm that sits in the higher bands. Accordingly, this approach may force focus on the harm more than the status of the employee.

Another example is the setting of notice periods.

Termination of employment must follow proper process including providing the employee with the appropriate notice or payment in lieu of notice, unless it is a summary dismissal.

What constitutes 'appropriate notice' is normally set out in the employee's employment agreement.

However, in the absence of an agreement setting out notice, there is an implied term that 'reasonable notice' will be given.

Case law has been clear that reasonable notice is higher for those higher up in the employing entity's hierarchy - with the most senior managers attracting the largest notice periods. Salary and professional standing are other relevant considerations.

Hisco's exit payment of a year's salary, totalling $3.8 million, was said to be a contractual term, one that would be highly unlikely to be agreed to for a less senior employee.

However, the quiet payment of large sums of money to departing senior executives flows not only from employment law and contractual obligations but also the publicity that can be attracted by employment disputes with senior executives - both for the employer and the departing employee.

In the case of ANZ, the board would be conscious of ANZ's reputation in the midst of its capital requirements controversy and growing distrust of banks flowing from the revelations of the Royal Commission into banking in Australia.

In that context, payment of a year's salary to a departing chief executive as part of a 'mutual parting' may have been beneficial to the bank as a means of avoiding further controversy created by a public employment dispute.

In any event, it is common for an employer to try to reflect contractual terms in any settlement agreement, even where misconduct is arguable.

Regardless, it appears that the public perception of "fat cats" getting favoured treatment is likely to lead to the Hisco controversy filling the media for some time to come.